Axsome Therapeutics, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. The company is a clinical-stage biopharmaceutical developer focused on central nervous system disorders; it had no approved products and reported no revenue.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $5.55 million | $5.01 million | $10.30 million | $10.99 million |
| General and administrative expense | $2.44 million | $1.74 million | $4.85 million | $3.43 million |
| Operating loss | $7.99 million | $6.75 million | $15.15 million | $14.42 million |
| Net loss | $8.28 million | $7.08 million | $13.09 million | $15.08 million |
| Basic and diluted loss per share | $0.32 | $0.30 | $0.51 | $0.70 |
- Six-month net loss included a $2.674 million noncash gain from the decline in the fair value of warrant liabilities. This reduced reported net loss but did not represent operating cash generation.
- Cash was $20.35 million at June 30, 2018, down from $34.02 million at December 31, 2017. Operating cash use was $14.35 million for the first half, versus $13.73 million a year earlier; investing cash use was $0.02 million.
- First-half financing provided $0.70 million: approximately $2.37 million net from at-the-market stock sales, offset by $1.67 million of term-loan principal repayments.
- Term-loan principal outstanding was $8.06 million, with a $3.28 million current carrying amount and $5.19 million long-term carrying amount. The loan matures in November 2020, bears interest at 4.5% plus prime, and is secured by company assets other than intellectual property.
- Total liabilities were $14.72 million and stockholders’ equity was $7.01 million. Operating margins are not meaningful because the company had no revenue.
Material changes and business developments
- Q2 operating expenses rose 18% year over year, driven by higher research and development and general and administrative expenses. Management attributed R&D increases primarily to AXS-05 trials and work on AXS-07; G&A increases reflected intellectual-property and legal costs, public-company fees, and personnel costs.
- First-half R&D expense declined year over year as costs from earlier trials fell, partly offset by AXS-05 and AXS-07 development. First-half G&A expense increased.
- First-half net loss improved year over year, principally because of the warrant-liability fair-value gain; operating loss increased.
- The company continued Phase 3 STRIDE-1 for AXS-05 in treatment-resistant depression after an interim futility review recommended continuation, and reported that the interim safety review found AXS-05 appeared safe and well tolerated. It also continued the AXS-05 Phase 2/3 ADVANCE-1 study in Alzheimer’s agitation and began enrollment in the AXS-05 MDD Phase 2 ASCEND study and a smoking-cessation Phase 2 study.
- An interim review supported continuing the AXS-02 COAST-1 Phase 3 knee osteoarthritis study to full enrollment. The AXS-02 CREATE-1 CRPS trial was discontinued for futility; the company said COAST-1 screening and enrollment were paused pending STRIDE-1’s final readout.
- AXS-09 met the primary endpoint in a completed Phase 1 trial. AXS-07 was being developed for acute migraine; other candidates included AXS-02 for pain and AXS-06 for arthritis and reducing NSAID-associated gastric-ulcer risk.
Outlook, risks and unusual items
- Management estimated existing cash would fund anticipated operating requirements into the third quarter of 2019. This estimate depends on clinical-trial timing and spending assumptions; the company expects further financing will be needed and warned that acceptable financing may not be available.
- The company expects continuing and potentially increasing losses, has an accumulated deficit of $89.7 million, and may never achieve profitability. It had no product revenue and did not provide specific financial guidance for revenue, earnings, or expenses.
- The $10 million of potential additional SVB loan advances expired because specified milestones were not met. The company must make monthly principal and interest payments and comply with loan covenants; default could permit acceleration and enforcement against collateral.
- Material intellectual-property development: on June 22, 2018, the Patent Trial and Appeal Board issued a final written decision holding claims of the company’s U.S. Patent No. 9,283,239 invalid for lack of written description. The filing also describes post-grant reviews of other patents, with outcomes uncertain. AXS-02 was no longer being developed for CRPS.
- Three exclusive licenses are with Antecip, an entity owned by the CEO and board chair, and provide for royalties on certain licensed products if commercialized. The related-party relationship creates a potential conflict of interest.
- Key risks include clinical-trial failure or delay, regulatory uncertainty (including reliance on the 505(b)(2) pathway), financing and dilution, patent challenges, dependence on third-party manufacturers and CROs, competition and reimbursement uncertainty. No material legal proceedings were pending, and management reported disclosure controls effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether cash burn and trial costs remain consistent with the stated runway into Q3 2019, and the timing and terms of any additional financing.
- STRIDE-1 final results and the status, enrollment, timing, and outcomes of ADVANCE-1, ASCEND, COAST-1, and other development programs.
- The practical impact of the PTAB decision on the AXS-02 patent portfolio, and the outcomes of reviews of the other challenged patents.
- Debt repayment, interest and final-payment obligations, covenant compliance, and the availability of remaining at-the-market capacity.
- Potential dilution from future equity issuance and the implications of the Antecip related-party licenses and associated royalties.